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How to Get Started with a College Savings Plan

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It’s never too early to put away money for your child’s education. Consider these options before choosing a plan.

Step 1: Start now
Start saving right now – even if your child is an infant. The more time you have, the more money you can save, and the more interest you’ll earn.

Step 2: Get a 529
Sign up for a state-sponsored 529 savings plan. All the money you put in earns interest tax-free, and there are no fees or taxes when you withdraw it as long as you use it for school. Each state has different rates and rules; type “529” and a state name to find information.

Tip
You don’t have to choose your own state’s plan, and you don’t have to stay with one plan. You just have to limit transfers to once every 12 months.

Step 3: Start an account in your own name
If you open any other accounts for your child’s education, make sure you put the accounts in your name. This will make it easier for your child to qualify for federal financial aid because the financial-aid application assumes only 5.6 percent of a parent-owned account will be used to pay for college, versus 20 percent of a student-owned plan.

Step 4: Join Upromise
Register at Upromise.com, and you’ll get money for your college fund every time you buy something at specific retailers and restaurants. You can arrange for the rebates to be deposited into your 529 savings plan every quarter.

Tip
Friends and relatives can open UPromise accounts linked to your child’s 529.

Step 5: Consider other funds
Consider other plans, like mutual funds that specialize in college-tuition savings, or an educational IRA. Just like a 529, these have more lenient tax rules than savings vehicles not earmarked for college. Consult a financial adviser to get started.

Step 6: Invest wisely
When investing for college, consider how many years you have to save. Stocks have the potential to provide higher profits but are risky; bonds are safer, but yield limited returns. If your child is more than 10 years from college, invest slightly more heavily in stocks. If your child is past third grade, choose safer investments.

Step 7: Get the word out
Tell loved ones about your child’s college fund and ask them to contribute whenever there’s a holiday, birthday, or special occasion.

Step 8: Have your child help, too!
College isn’t just your responsibility! Once your child is old enough for an allowance or a part-time job, encourage them to add to their college fund. Research shows that children who contribute to their college fund tend to get better grades because they learn to take their education seriously at an early age.

Did You Know?
Over the past thirty years, college tuition rates have risen between 5 to 8 percent a year – outpacing inflation.

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